Monday, April 14, 2008

The recent election of Ma Ying-jiu as the next president of Taiwan. An anti-corruption and pro-China candidate is set to reverse the deteriorated relations that his predecessor Chen Sui-bian had created. Ma Ying-jiu has already made it his agenda to improve relationships with Beijing and loosen and increase trade between Taiwan and China. As a gesture, Beijing plans to remove half of the missiles that are currently aimed at Taiwan.

The better relations will bring many benefits:

Currently laws in Taiwan has it that Taiwanese companies may only move up to 40% of manufacturing onto the mainland. Should these laws be loosened, the immediate benefactors will be Taiwanese export companies as their manufacturing costs will go down. This will be an immediate boost to their near term financial results.

As Jim Rogers has articulated. Taiwan may become an island paradise for Chinese tourists. Tourism is sure to increase as travel restrictions are loosened.

The Taiwanese Dollar is also on a rise. It has already risen 10% against the American dollar since January of this year but still lags behind the Euro which has risen 15%. The Euro has risen tremendously in the last few years not so much because it is the most attractive currency but more so because investors need a major currency to hide away from the depreciating American dollar. Until the Chinese Yuan becomes freely convertible and accessible for foreigners, The Taiwan dollar is a good alternative to place your chips on Chinese growth and to diversify away from the American dollar.

The easiest way to invest in Taiwan is through the Exchange traded fund listed on the NYSE as EWT. Buying EWT presents two advantages. One, is you are buying and believing in future growth of the Taiwan economy, no need to pick and risk in specific companies. Second, it is a hedge against the US dollar as the assets that EWT buys are Taiwanese stocks priced in Taiwanese dollars. Therefore, should the US dollar fall further against the Taiwanese dollar, the assets (and thus EWT) will increase in price since EWT is priced in US dollars.

2) Australian Dollar

Australia, just like Canada, Norway, Argentina, Saudi Arabia etc are mainly resource based economies. Meaning that the staple of their economies are on the natural resources that they sit on. Oil, timber, wheat, metals, soybeans, whatever they may be, these economies have seen a strong comeback in recent years due to the much increased demand and high commodity prices that have followed.

I have previously favored the Canadian dollar which has risen over 60% against the US dollar over the last 7 years. The Canadian dollar has also historically traded at a 10% premium to the Australian dollar. Meaning one Canadian dollar has historically fetched $1.10 Australian. This trend has recently been broken and as of this writing, one Canadian only fetched $1.05 Australian. I see two reasons for this sudden surge in the value of the Australian dollar:

Firstly, the Australian dollar is yielding 7% versus the Canadian dollar at 3.25%

Secondly, as increasing world trade and focus is shifting from the US to Asia and China. Australia is set to benefit. Canada is highly dependent on the US in her economy. Whereas Australia is more on her Asia and pacific rim partners. Australian prime minister Keven Rudd recently was on the Chinese island of Hainan to meet with Chinese leaders. There, he made a speech in mandarin! And fairly good mandarin at that. He is a prime minister that understands well that his countries economic well being is highly inter-dependent with Asia's. Australia is sure to benefit from these ties and future projects and business trade over similar economies such as Canada.

This is also a hedge against the falling US dollar.

3) Solar, Wind and other alternative energy

A recent survey by Tobin Smith's Changewave Alliance research shows Solar power to be an overwhelming first choice for alternative energy source. The reasons are obvious. Solar power is plentiful and unlike ethanol, it doesn't take away from other needs such as corn for food. A quick search and filtering will show that eight out of every ten Solar companies are in China. Germany and US companies are also at the cutting edge. Many governments around the world are encouraging the use of Solar and providing tax incentives to do so.

I see solar as the next 'leadership industry group' a term used by the Investors Daily group. Some of the front runners in this space are FSLR, JASO, SOL and LDK all listed on NASDAQ and NYSE.

4) Agriculture

For those who follow the markets, the word 'Ag' should not be unfamiliar because Agriculture companies have seen a rise especially over the last two years. But this trend of growing demand for food is set to continue and some of the companies best set benefit from this bull market are POT, VT and MON. ETFs are also available, DBA and JJA listed on the NYSE

5) Water

World wide water shortages is becoming serious and many Water distillation companies and filtration companies are set to benefit. The best way to invest in this space is through ETFs such as PHO listed on NYSE

6) China

The Shanghai stock market has seen a 50% haircut since its peak in early November of 2007. The hit has mainly been due to a pull back from over extended levels and a pullback in the US which many still believe will have large effects on the Chinese economy. Where people stand varies on this but my understanding is that the two economies are not as correlated as people think. Sure, a slowdown in the US will affect the world, but it won't stop the rest of the world at its track. A slowdown in the US economy should cut 3% of GDP from China's 9%+ GDP growth at most. Internal demand is also strong. I therefore encourage all to begin investing in China if you have not so already. The best way is through FXI traded on NYSE which is a basket of Chinese H stocks listed on the Hong Kong stock exchange.

7) Supermarkets

Supermarkets are great investments during a recession. Some of the best supermarket chains around the world are Seven Eleven and Carrefour. Both very competitive and doing well in international markets outside of their home markets. Seven Eleven is wholly owned under Seven and I in Japan under the ticker symbol 3382. Carrefour is traded in France.